A reporter from a major financial magazine called recently wanting to brainstorm a theory - that it is the discounters in real estate which are causing real estate commissions to come down. While discounters have had an impact by making it easier for consumers to get a "discount," there are other points to consider.

First, discounting isn't new, second, the "standard" commission fee has already trended downward, and third, commissions can no longer be tracked accurately because of new business models, among other food for thought.

"Discounters" have been around since "organized" real estate brokerage began over one hundred years ago. What makes some brokerages seem shiny and new is their use of the Internet and branding. How could brand names like eRealty and zipRealty not appeal to the homebuyers who love using the Internet? Their "discount" models are based on acquiring listings from the MLS (other brokers) and making them available to the public so that the public does much of the search and pre-selling of homes to themselves. Communications are also taken care of as much as possible online, saving expensive in-person sales activities which also lowers overhead.

But discounters may have more in common with full-commission brokers than differences. One of the CEO's of these companies once showed his hand that despite being able to offer lower costs to consumers, the problems of running a brokerage, no matter how streamlined, are the same.

He said, "All I need are 50 more good agents." That's a statement that could have come from the mouth of any broker in America.

The "standard" commission rate quoted so slavishly by the media is no longer at six to seven percent. In fact, it's been dropping for years, say industry insiders. No less than three separate polls have "estimated" the "average" commission rate at 4.2, 5.1, and 5.4 percent, none of which is near six or seven percent.

But neither has a new norm for commissions been established for the media and public to chew upon. They want to know where to begin commission negotiations. If commissions are negotiable, why should the industry tell them the bidding begins at 5.5 percent when six or seven percent will buy a little more wiggle room?

All the discounters are saying is there is no more wiggle room. The commission is no longer negotiable because it has already been established at the lowest level the company feels it can do business.

To complicate matters even further, there is some question about what fees the commission rate covers.

Traditionally, the listing broker negotiates a brokerage commission fee with the seller. The listing broker then puts the listing into an MLS with a co-op fee offered to selling brokers to be paid out of the listing broker's commission fee.

However, newer business models, including exclusive buyer's agency, reject these fees in favor of negotiating their own fees with their buyers which are paid out of the proceeds of the transaction. Are these fees accounted for when commission polls of agents are taken? We don't know.

The practice of giving consumers rebates out of broker commissions has grown as well, with no evidence that such rebates or gift certificates, which are paid for out of commission proceeds, are counted in or subtracted from commissions. So, when polls are taken, what is the accurate number?

Are discounts the same as rebates? That can also be debated, but they can have the same net effect.

Many traditional brokers are accepting leads from lead generation companies such as LendingTree in which consumers are rewarded with gift certificates. How are those commissions accounted for? Again, we don't know.

How well the discount companies are doing financially is anyone's guess, but it could be telling that only this year, eRealty, before it's acquisition by Prudential, and zipRealty, ahead of its pending IPO, raised their commission rates to be nearly in line with competing traditional service providers.

Therefore, it's difficult to nail down whether discounters are impacting commissions or not. If discounting isn't new, and a standard commission nationwide can't be quantified, and the lines of discounting are blurred, who's to say all brokers aren't discounters?

Published: August 11, 2004

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Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. For more articles by Blanche, click here.